Sound Management with Integrity
Warren Buffett has famously said that you look for three characteristics in a manager: intelligence, integrity and energy, and of these three, integrity is the most important.
“When you hire someone to run your business, you are entrusting him with the piggy bank. If these people are smart and hardworking, they are going to make you a lot of money, but if they aren’t honest, they will find lots of clever ways to make all your money theirs.” -- Warren Buffett
Companies whose managers enrich themselves at company expense with extravagant salaries or the abuse of stock option grants, or who pursue growth for growth’s sake -- irrespective of the value that growth produces -- would not pass the Buffett test. Any sign of extravagance should be a red flag to the conservative investor.
Of course, even the best manager cannot overcome a business that is not intrinsically sound. Buffett says:
“When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” -- Warren Buffett
While sometimes it may be difficult to determine if company management is sound, listening to the quarterly conference calls or reading the transcripts of those calls often provides valuable information.
We have found that listening to these calls and reading the transcripts of these calls gives us a much better understanding of the issue the companies are facing, and whether management is dealing effectively with those issues. It has been our experience that candor and common sense are essential, and the lack thereof is evidence of management who should be avoided.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Dave Crouch and not necessarily of Raymond James. Raymond James is not affiliated with and does not endorse the opinions or services of Warren Buffett or Charlie Munger. This is not a solicitation to buy or sell Berkshire Hathaway stock or any other security. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Past performance may not be indicative of future results.